Do We Need Another Stimulus Bill?

by Conor Clarke

The House and Senate agreeing on another stimulus package is about as likely as two pandas mating in captivity. Which is to say: It's not likely. But that's not a reason to avoid debating it! Today and over the weekend we had Brad DeLong and Paul Krugman and Matt Yglesias and Felix Salmon and Martin Feldstein and Brad DeLong (again!) and Ezra Klein and assorted eminent people in a Washington Post roundtable (gosh, not to mention this Economist round-up) all weighing in on the question: Do we need a second stimulus?

So, do we? Let me to give an impressively wishy-washy answer: Yes and no.

On the one hand, I have a soft spot for Brad's take on the current situation: When Congress and the administration designed the first stimulus, they expected unemployment of 7.9%. Unemployment is now between 9.5% and 9.7%. (That's bad, and the month-over-month change in employment looks even worse.) Moreover, I agree with Brad that this isn't evidence the first stimulus "didn't work." For one, it's hard know where we'd be in the absence of the first stimulus. For another, only a small portion of the first stimulus has been spent.

But it seems to me that Brad's description of the current situation is a necessary but not sufficient (as they say in law school) argument for a second stimulus. Asking, "Is the economy bad and getting worse?" and answering "Of course!" is only half the battle. The other question is, "Would a second stimulus help right now?" And I'm less convinced that the answer to that is such a no-brainer. That's because spending money quickly is hard -- really hard! And we'll soon run up against the limits of our capacity to spend, if we haven't already. Here's why:

This chart is from Recovery.gov, the administration's website for tracking stimulus spending. It's shows the amount of stimulus funding that's been made available to federal agencies ($174.9 billion) over the amount of stimulus funding that's been paid out ($60.4 billion). Note that the rate of increase for available funds exceeds the rate of spending. This suggests that funds are becoming available faster than they are being spent.

It seems to me that the threshold question for Brad is: Why wouldn't this bottlenecking happen to additional stimulus dollars? Would there be something different about the structure of the second stimulus? One big, instantaneous payroll tax cut? Eh?